Business Finance Project: Cost Classification, Reduction, Forecasting

This project covers cost classification, reduction assessments, and forecasting for Dysonica Plc. It includes the classification of costs based on behavior, types of indirect costs, and various costing methods. The project also discusses cost reduction assessments and findings, and a 12-month forecast/budget for the business.

Time constrained
project Business
Finance

Contents
INTRODUCTION......................................................................................................................3
TASK 1......................................................................................................................................3
Classify the costs according to its behaviour and explain the types of attributing indirect
costs........................................................................................................................................3
TASK 2......................................................................................................................................5
Discuss the cost reduction assessments and findings.............................................................5
TASK 3......................................................................................................................................6
Up to 30 April, 2023; prepare a 12-month forecast/budget for the business.........................6
TASK 4....................................................................................................................................10
Clear arguments are required to back up the evaluation with conclusions and suggestions.
..............................................................................................................................................10
CONCLUSION........................................................................................................................11
REFERENCES.........................................................................................................................12

INTRODUCTION
Any company's financial system is its backbone. It's practically impossible to succeed
without a sound financial foundation. The money and credit employed in a firm are referred
to as business finance. Any company's financial foundation is crucial. Funding is required to
purchase real estate, commodities, environmental assets, and other business-related assets.
Financial management can provide the tools needed to create deficit-reduction strategies
(Dent, Hoke and Panagiotopoulos, 2021). Dysonica is a huge international creative company
based in the United Kingdom that now has a global presence. Its products are available on the
town centre as well as on the internet. Due to competitive pressure, many price efforts have
been implemented, including the migration of operations from the United Kingdom.
TASK 1
Classify the costs according to its behaviour and explain the types of attributing indirect
costs.
Any expense incurred by a corporation in order to create or produce products and
services is referred to as a cost. It is the expenditure incurred on the sale and acquisition of a
business. In order to produce things, the company must incur both fixed and variable costs.
Fixed cost: It is a requirement that, regardless of the firm's size, will be included in the
expenses. During the production process, the corporation spends money on property tax, rent,
depreciation, and insurance.
Factory and storage rent: 18000 per month = 18000.00 * 12 = 216000.00
Insurance: 500 per month = 500.00 * 12 = 6000.00
Machinery: 1500 per month = 1500.00 * 12 = 18000.00
Office and sales staff: 9000.00 per month = 9000.00 * 12 = 18000.00
Variable Cost: Variable cost is determined by the firm's production, which is created by the
firm. It's feasible that a boost in production will lead to an increase in variable expenses as a
result of this. It includes commissions, raw materials, utility costs, and labour, all of which
contribute to the firm's variable cost increasing.
Direct labour: 17500.00 per month
Raw material: 15000.00
Semi variable cost: It is one that is made up of both variable and fixed expenses. These costs
are fixed at a specific level of output and thereafter vary based on the amount of output.

When no units are created, a predetermined amount is charged, known as fixed cost (De-
Ramon, Francis and Harris, 2021).
Utilities: 500 per month = 500.00 * 12 = 6000.00
Logistics cost: 3000.00 per month
Fixed Costs £ Variable Costs £ Semi-variable
Costs
£
Machinery 1500.00 Raw materials 15000.00 Utilities 500
Factory and
storage rent
18000.00 Direct labor 17500.00 Logistics 3000.00
Office and sales
staff
9000.00
Insurance 500.00
Total 29000.00 32500.00 3500.00
 Absorption costing: It is a costing method that considers all manufacturing costs. This
strategy is used by corporations to absorb the prices of its products. All these direct
and indirect charges are provided by the expenditures. Manufacturing means of
production are included in direct expenses (Kreiss and et.al., 2021). Production
leasing, administration costs, licencing, and maintenance are all examples of variable
expenses.
For example, let’s pretend ABC is a computer company. The information supplied
pertains to the manufacturing process. Profits are calculated using the absorption costing
approach. A total of 10,000 units were produced, with 9000 of them being sold. Each device
will cost $50 to purchase.
Direct labour cost = $5.00
direct material is $ 20.00
$ 5.00 in other variable costs
Overheads Fixed = $ 5.00
$ 30,000.00 in fixed costs
 Marginal Costing: This is a method of allocating variable manufacturing expenses to
products. It's the ratio of an increase in expenses to an increase in output. There are
two types of expenses in a product: fixed costs and variable costs. Regardless of
industrial production, fixed expenses remain constant. Variable costs, on the other
hand, fluctuate as a result of global manufacturing changes (Dhole and et.al., 2021).
Marginal cost per unit can be computed by the following formula:
Marginal cost = Change in cost / Change in Quantity

The shift in cost is due to a shift in production capacity. Fixed will remain the same
regardless of the number of units generated.
Take an assumption XYZ Ltd. is a bottle-producing enterprise. The following details
regarding its manufacturing facilities are provided.
10,000 units produced in the first month
Month 2: 15,000 Units Produced Month 1
Variable Costs = $50,000
Month 2 Variable Costs = $ 80,000
Changes in price + quantity = Marginal Cost = Marginal Cost (80,000 – 50,000)/ (15,000 –
10,000)
As a result, the per-unit marginal cost is $ 6.00 (30,000/5,000).
 Activity Based Costing: It is a much more precise approach of evaluating a business's
or service's price, resulting in better price choices. It improves management's
understanding of overhead and variable costs by highlighting ineffective and non-
value-added operations that can be reduced or eliminated. ABC allows for a more
detailed examination of operational costs in order to devise efficient methods for
allocating and minimising overheads (Liang, Ashuri and Li, 2021). It also allows for a
more precise estimate of sales and customer sales. It encourages its use of tools and
methodologies, such as a balanced scorecard, but also continuous improvement.
This method aids in determining the process's value and importance in the
manufacturing process. As a result, goods are classified according to their value. It
helps to improve the costing process in three ways. The ABC costing's A list
evaluates the commodities with the greatest value and smallest share. In the 'B'
section, the commodity having the lowest value than second criteria are listed. The
third section assesses those with a low net worth but a large number of them.
TASK 2
Discuss the cost reduction assessments and findings.
From the many costing strategies stated above, it is recommended that Dysonica Plc
use activity-based costing or marginal costing to help the company control expenses resulting
from various processes (Marley and et.al., 2022). This allows the company to divide expenses
depending on procedures and establish which one is responsible for a number of the
expenditures, allowing management to reduce costs and optimise appropriate strategies.

Activity-based costing is a one-stop shop for companies looking to cut costs. It enables
organisations to track costs as they happen rather than aggregating them with certain other
costs. As a result, the true price source is identified, and organisations may focus on
effectively regulating that specific cost heading rather than on additional unchangeable
drivers. Because overhead expenses are classified and organised into categories based on the
number of operations, the allocation of overhead costs is more accurate and objective. Instead
of adding all prices in together to evaluate the company's related spending, ABC organises
expenditures by purpose to simplify the process (Onwudili and Edou, 2022).
Previously untraceable expenses, such as depreciation, may now be traced back to
specific actions thanks to activity-based accounting. By transferring administration expenses
from increased goods to lowered goods, the ABC method can affect the unit cost of low-
volume products.
TASK 3
Up to 30 April, 2023; prepare a 12-month forecast/budget for the business.
Cash flow forecasting includes predicting future revenue and expenses. A cash flow
forecast is a vital tool for their company since it shows them if they will have enough money
to function and grow. This will disclose when the company is losing more money than it is
bringing in. A cash flow prediction is a method used by administrative and financial
professionals to forecast approaching cash demands across their company. Financial
planning's major purpose is to assist with cash flow; the larger the company, the more
complex and difficult the cash flow statement becomes (Pan, 2019).
The below in the cash flow forecasted statement ill 30th April, 2023:
Cash flow
Statement
Particular MAY JUNE JULY
AUGU
ST
SEPTE
MBER
OCTOBE
R
A. Cash flow from
operating activities:-
Sales/Revenue
£
25,000.
00
£
35,000.
00
£
49,000.00
£
68,600.
00
£
96,040.
00
£
1,34,456.00

Payment of salary
-£
26,500.
00
-£
26,500.
00
-£
26,500.00
-£
26,500.
00
-£
26,500.
00
-£
26,500.00
Raw materials
-£
15,000.
00
-£
21,000.
00
-£
29,400.00
-£
41,160.
00
-£
57,624.
00
-£
80,673.60
Rent Paid
-£
18,000.
00
-£
18,000.
00
-£
18,000.00
-£
18,000.
00
-£
18,000.
00
-£
18,000.00
Accountant's fee
- £
1,500.0
0
Payment of Utilities
- £
2,500.00
- £
2,500.00
Telephones
-£
1,000.00
- £
1,00
0.00
Vehicles
-£
20,000.
00
-£
200.00
-£
200.00
-£
200.00
-£
200.00
-£
200.00
marketing costs
-£
1,250.0
0
-£
1,750.0
0
-£
2,450.00
-£
3,430.0
0
-£
4,802.0
0
-£
6,722.80
Water
- £
100
.00
- £
100.
00
Logistics
-£
3,000.0
0
-£
3,000.0
0
-£
3,000.00
-£
4,500.0
0
-£
3,000.0
0
-£
3,000.00
Machinery
-£
1,500.0
0
-£
1,500.0
0
-£
1,500.00
-£
1,500.0
0
-£
1,500.0
0
-£
1,500.00
Insurance -£ -£ -£ -£ -£ -£

500.00 500.00 500.00 500.00 500.00 500.00
Misc. Expense
-£
50.00
-£
50.00
-£
50.00
-£
50.00
-£
50.00
-£
50.00
Net cash flow from
operating activities:-
-£
62,300.
00
-£
37,500.
00
-£
36,200.00
-£
27,240.
00
-£
16,136.
00
-£
6,290.40
B. Cash flow from
financing activities:-
£
-
£
-
£
-
£
-
£
-
£
-
Net Cash flow from
financing activities:-
£
-
£
-
£
-
£
-
£
-
£
-
C. Cash flow from
Investing activities:-
Initial investment
made
£
20,000.
00
£
-
£
-
£
-
£
-
£
-
Net cash flow from
investing activities:-
£
20,000.
00
£
-
£
-
£
-
£
-
£
-
Total cash inflow /
outflows(A+B+C)
-£
42,300.
00
-£
37,500.
00
-£
36,200.00
-£
27,240.
00
-£
16,136.
00
-£
6,290.40
Cash
flow
Stateme
nt
Particular
NOVEM
BER
DECE
MBE
R
JANU
ARY
FEBU
RARY
MAR
CH APRIL
Total(
Year
1)
A. Cash flow from
operating

activities:-
Sales/Revenue
£1,88,23
8.40
£2,63,
533.76
£3,68,
947.26
£5,16,
526.17
£7,23,
136.64
£10,12
,391.29
£34,8
0,869.
52
Payment of salary
-£
31,800.00
-£
31,800
.00
-£
31,800
.00
-£
31,800
.00
-£
31,800
.00
-£
31,800.
00
-£
3,49,8
00.00
Raw materials
-£
1,12,943.
04
-£
1,58,1
20.26
-£
2,21,3
68.36
-£
3,09,9
15.70
-£
4,33,8
81.98
-£
6,07,43
4.78
-
Rent Paid
-£
25,000.00
-£
25,000
.00
-£
25,000
.00
-£
25,000
.00
-£
25,000
.00
-£
25,000.
00
-£
2,58,0
00.00
Accountant's fee
-£
1,500.
00
Payment of Utilities
- £
2,500.
00
-£
2,500.0
0
-£
10,000
.00
Telephones
- £
1,000.
00
-£
1,000.0
0
-£
4,000.
00
Vehicles
-£
200.00
-£
200.00
-£
200.00
-£
200.00
-£
200.00
-£
200.00
-£
22,200
.00
marketing costs
-£
18,823.84
-£
26,353
.38
-£
36,894
.73
-£
51,652
.62
-£
72,313
.66
-£
1,01,23
9.13
-£
3,27,6
82.15
Water
- £
100.00
-£
100.00
-£
400.00
Logistics
-£
3,000.00
-£
3,000.
00
-£
3,000.
00
-£
3,000.
00
-£
3,000.
00
-£
3,000.0
0
-£
37,500
.00
Machinery
-£
1,500.00
-£
1,500.
00
-£
1,500.
00
-£
1,500.
00
-£
1,500.
00
-£
1,500.0
0
-£
18,000
.00
Insurance
-£
500.00
-£
500.00
-£
500.00
-£
500.00
-£
500.00
-£
500.00
-£
6,000.
00
Misc. Expense
-£
50.00
-£
50.00
-£
50.00
-£
50.00
-£
50.00
-£
50.00
-£
600.00
Net cash flow from
operating
activities:-
- £
5,
57
8.
48
£
17,010
.13
£
45,034
.18
£
92,907
.85
£
1,54,8
90.99
£
2,38,06
7.39
£
24,45,
187.37
B. Cash flow from £ £ £ £ £ £ £

financing
activities:- - - - - - - -
Net Cash flow from
financing
activities:-
£
-
£
-
£
-
£
-
£
-
£
-
£
-
C. Cash flow from
Investing
activities:-
Initial investment
made
£
-
£
-
£
-
£
-
£
-
£
-
£
20,000
.00
Net cash flow from
investing
activities:-
£
-
£
-
£
-
£
-
£
-
£
-
£
20,000
.00
Total cash inflow /
outflows (A+B+C)
-£
5,578.48
£
17,010
.13
£
45,034
.18
£
92,907
.85
£
1,54,8
90.99
£
2,38,06
7.39
£
24,65,
187.37
TASK 4
Clear arguments are required to back up the evaluation with conclusions and suggestions.
The cash flow budget shown above shows that Dysonica's business is doing well. The
corporation can generate a significant amount of cash flow over a period of time, culminating
in favourable financial cash. In such seasons, the sales of the company are increasing at a
rapid rate, as expected, showing that the organization is likely to sell sufficient things to stay
afloat in a competitive market (Sugathan and et.al., 2018). The total cash injection into the
corporation during the first year amounted £ 2,465,187, which would be a remarkable
opportunity for the company because they can help Dysonica flourish by engaging in
numerous scenarios. The company must save costs wherever possible, especially those
incurred as a result of currency exchange rates between countries like the United Kingdom
and China. Financial derivatives could be used to assess the trade at a predetermined rate,
allowing the corporation to better control the costs connected with this part of the operation.
It is really worth noting that the company has negative cash inflows of first 7 months and a
postive cash flow from december to april. As company generates more cash revenue than the
overall expenditure from december to april. It implies that the corporation had a working
capital during first six to eight years of existence. Further, it indicates that the company needs
to either raise revenues or reduce spending. The firm's financial status is influenced by the

continued rise in investment, which really is necessary for every business to thrive in
complex economic sectors and around the world. Optional stock affiliations can help
decrease costs by detecting which drives are malfunctioning and costing the company money.
To sustain good functional earnings over a longer period of time, they should execute their
functional workouts at a steady speed.
The cash outflow has an indirect influence somewhat on business's economic state,
which is a key criterion for any business to succeed in today's highly competitive and global
market. Costs could be cut by using a different supply chain and assessing which efforts are
profitable and which are incurring losses under the control of an organization (Swärdh and
Genell, 2020).
CONCLUSION
According to the above-mentioned opinion, corporate finance and the management of
these funds is a significant and critical component of the firm's performance. Businesses that
operate on a worldwide basis, like Dysonica, face fierce competition. In order to keep ahead
of its competition in a competitive industry, they must reduce the company's current
numerous costs. Cash flow predictions are an excellent way to estimate the inflow or outflow
of cash into or out of a company at the end of a specified timeline, and the business can use
them to create its own budgeting. Two of the most common costing approaches that a
corporation might use are marginal and activity-based spending. Dysonica eliminates the
potential of error and keeps track of all expenses that must be paid. It also aids the company
in cutting costs by utilising total expenditures and cost heads that do not contribute to the
company's core revenues.

REFERENCES
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